| makingmusic476 said: I see no point in a price cut. They're moving more consoles now than they ever have before, and cutting the price yet again would probably only lead to lost revenue. If they drop the price, it'd probably only be to counter a drop from Sony (not that they'd be stealing more sales from Sony at that point than they were before), it would probably be to $179 for the Arcade. |
Actually thats a simplistic assessment im sorry. 
Every Xbox 360 console sold is like an investment for the future really, its balancing the present hardware loss with the future revenue streams from each sold console. This is why the equilibrium price for consoles cause negative margins on the hardware.
Why would they cut the price? Their future customers are feeling the pinch, so people are even more price concious than ever before which means that even they will have to cut the price to sell as many consoles during the holiday season as last year.
Heres a case study: Assuming that theres only one $300 SKU which costs $275 to make. Each *extra* console sold is worth $50 per year revenue.
If the price was $300 they would sell 1M consoles and net $25M ($300M - $275M) + $50M (1M consoles x $50) = $75M now or $175M over 3 years.
If they reduced the price to $200 each console would cost $275 (Economies of scale, reduced retail margins) and they would sell 1.75M*** consoles. They would lose $130M ($350M - $480M) + 87.5 = loss of $42.5M, making $45M net profit the next year and $132.5M the year after.
So you see, both strategies are viable, it just depends on which one they choose to take.
Btw, the reason why I chose 1.75M is because so long as demand is elastic (which means revenue rises as price drop) they should net more overall revenue than before a price drop.
Tease.
